Defense Finance and Accounting Service

The Chief Financial Officers Act of 1990 (31 USC 501, Pub. L. 101–576, title I, §101, Nov. 15, 1990, 104 Stat. 2838) and 10 USC 113 laid the groundwork for the Secretary of Defense to establish a more streamlined federal financial management structure.[6] In late 1990, under the guidelines of the Department of Defense Directive (DoDD) 5118.5, the establishment of DFAS was announced in the Federal Register (55 FR 50179 (1990)). These guidelines were later codified in the Code of Federal Regulations in (32 CFR Part 352a).

The United States Department of Defense is the parent agency of DFAS. Defense Finance and Accounting Service Garnishment Operations Center and the Defense Finance and Accounting Service Out-of-Service Debt Management Center are subordinate agencies of DFAS.[8]

• 1991 DFAS founded
• 1992 Began consolidation of 300 field sites into 26 DFAS centers
• 1994 Began paying all DoD civilian employees; established centralized disbursing
• 1995 DoD establishes DFAS as a Fourth Estate Human Resources Regional Service Center
• 1998 Consolidated military pay operations into one system
• 2000 First unmodified financial statement audit opinion
• 2002 Received first unmodified audit opinion for Defense Commissary Agency and Defense Contract Audit Agency
• 2005 Base Realignment and Closure realigns DFAS into 10 sites
• 2006 Initiated Wounded-in-Action program providing real-time financial support to wounded service members
• 2007 Wounded Warrior Family Support Debit Card Program implemented providing funds to families of wounded warfighters
• 2010 Created Audit Readiness Directorate
• 2013 Achieved unmodified opinions on Statement on Standards for Attestation Engagement No. 16 for Civilian Pay, Military Pay, and Disbursing
• 2016 Achieved the 17th unmodified audit opinion for DFAS WCF Financial Statements[9]

A 2013 Reuters investigation concluded that DFAS implements monthly "unsubstantiated change actions"—illegal, inaccurate "plugs"—that forcibly make DOD's books match Treasury's books.[11] Reuters concluded:

Fudging the accounts with false entries is standard operating procedure... Reuters has found that the Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn't need and on storing others long out of date. It has amassed a backlog of more than half a trillion dollars... [H]ow much of that money paid for actual goods and services delivered isn't known.[12]

U.S. Congress passed the Chief Financial Officers Act in 1990. This Act directed all federal departments and agencies to submit to annual audits.[13]

DFAS is the lead Department of Defense unit in charge of auditing the U.S. military.

Before the audit kicked off, the Pentagon spent tens of billions of dollars to upgrade its technology in preparation for the audit. Many of the new systems failed, however, as they were "either unable to perform all the jobs they were meant to do or scrapped altogether—only adding to the waste they were meant to stop," according to Reuters.[14]

According to contract announcements, substantial audit activity took place during fiscal years 2016–2018, with DOD's first comprehensive audit concluding at the end of fiscal year 2018. Corporate accounting firms conducted the audit on behalf of DFAS, with Ernst & Young,[15][16][17][18][19][20][21][22][23][24] Kearney & Co.,[25][26][27] KPMG,[28][29][30][31][32][33] and PwC[34][35][36][37] prominent among them. Other firms, such as Cotton & Co.,[38][39][40] Deloitte,[41][42][43] and Grant Thornton,[44] provided audit readiness and financial improvement.

According to the Pentagon, the DOD's first audit covered $2.7 trillion in assets and $2.6 trillion in liabilities.[45][46]

The DOD did not pass this first audit.[47] Five of twenty-one units got a passing grade (an "unmodified opinion"). All the rest failed. The Pentagon estimated that this first audit cost close to $1 billion: $367 million for military infrastructure to support the audits and for the corporations conducting the audit, and $551 million to fix the problems identified in the audit.[48]

Investigative journalist Dave Lindorff described the situation: The accounting firms eventually concluded that the Department's "financial records were riddled with so many bookkeeping deficiencies, irregularities, and errors that a reliable audit was simply impossible."[49]

Deputy Secretary of Defense Patrick Shanahan asserted, "We failed the audit, but we never expected to pass it."[50]

A few months after the first audit was over, David Norquist—the man who as the Pentagon's comptroller oversaw the entire audit process—got promoted to Acting Deputy Secretary of Defense.[51] Norquist is a former partner of Kearney & Co., one of the firms that conducted the audit.[52]

After the first audit was over, DOD continued purchasing audit services from accounting firms, including from Ernst & Young,[53][54][55] Kearney & Co.,[56] and KPMG.[57][58]

In January 2019, the U.S. Air Force contracted Diligent Consulting (San Antonio, TX) to realign "the fielding strategy to match the needs of individual units" and "incorporate two financial processes necessary to be compliant with Financial Improvement and Audit Readiness and the Federal Information System Controls Audit Manual."[59]

DOD failed its second audit, though DOD officials insisted "progress" was being made.[60]

DOD failed its third audit, with DOD officials urging patience, asserting that DOD will likely pass its audit sometime around the year 2027.[61]

As of fiscal year 2022, DOD has still not passed its audit.